Global macro overview for 12/03/2018

Important data on inflation in the US and the Eurozone will be released this week. Market consensus assumes that in February US core CPI inflation will stabilize at 1.8% y/y. In the second case, analysts expect the core inflation rate to remain above 1.0% y/y. Readings from the US will not change the attitude of the Federal Reserve on the gradual normalization of monetary policy. In turn, low core inflation in the Eurozone should confirm that the issue of interest rate hikes by the ECB remains distant. Before the next FOMC decision on the interest rates planned for next week, attention will be focused on publications from the American economy. This week we will get data on retail sales, industrial production and industrial activity indices together with the initial reading of the University of Michigan index.

During the last session of last week, data from the Canadian labor market were also published. Investors were waiting for this publication because in January the Bank of Canada decided to further increase the cost of money and thus to the third rate hike in the current cycle of monetary policy normalization. BoC also emphasized that subsequent decisions will depend on the condition of the economy, and in particular on incoming data from the labor market. Data for February are well in line with expectations for further monetary policy tightening in Canada in the longer term. The unemployment rate dropped to 5.8% from 5.9% on a yearly basis. After a strong fall in January, employment rose by 15.4k in February, which was mainly due to the increase in part-time jobs. In addition, data on labor productivity in the fourth quarter of 2017 were published, which increased compared to the previous quarter. In conclusion, there is a high chance that BoC will hike the interest rate again this month.

Let’s now take a look at the USD/CAD technical picture at the H4 time frame. The market has tested the 61% Fibo and currently is reversing from this level. The nearest technical support is seen at the level of 1.2760 and this is very close to the black trend line support as well. Any breakout below this trend line will directly expose the level of 1.2689 and 1.2598 for a test. The overbought trading conditions support this view.